Question: A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years. a. The firm accepts projects with

A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years.

a. The firm accepts projects with payback periods of less than 5 years. What is this project's payback period? Will it be accepted?

b. Should this project be pursued if the discount rate is 2%? (What is its NPV?) What if the discount rate is 12%? Will the firm's decision change as the discount rate changes?

Step by Step Solution

★★★★★

3.53 Rating (167 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Payback period 2500600 4167 years This is less than the cut... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

968-B-C-F-B-V (1390).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

A project that costs $3,000 to install will provide annual cash flows of $800 for each of the next 6 years. a. What is NPV if the discount rate is 10%? b. How high can the discount rate be before you...

A project that costs $3,000 to install will provide annual cash flows of $800 for each of the next 6 years. The firm accepts projects with a discounted payback of 5 years or less. Should this project...

Find the NPV and PI of a project that costs $1,500 and returns $800 in year one and $850 in year two. Assume the project's cost of capital is 8 percent.

Please Help! & Show work Please.. A project that costs $2, 900 to install will provide annual cash flows of $640 for the next 6 years. The firm accepts projects with payback periods of less than 5...

7. A project that costs $975,934 14 to install will provide annual cash flows of $275,000.00 for each of the next 12 years a. Calculate the NPV if the discount rate is 15.40%? (Do not round...

3 Profitability Index. Consider the following projects: (L08-3) C1 Project A B -$2,100 -2,100 +$2,000 +1,440 C2 +$1,200 +1,728 a. Calculate the profitability index for A and B assuming a 22%...

MetaA project that costs $ 2 , 5 0 0 to install will provide annual cash flows of $ 6 0 0 for the next 6 years. The firm accepts projects with payback periods of less than 5 years. a . What is this...

Kindly help me solve the following:- Q.1. As an analyst, you were asked to decide whether a new consumer product should be launched. Based on projected sales and costs, we expect that the cash flows...

A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years. The firm accepts projects with payback periods of less than 5 years. a. What is this project's...

A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years. The firm accepts projects with payback periods of less than 5 years a-1. What is this project's...

An airplane is flying at constant speed v in a horizontal circle of radius r. The lift force on the wings due to the air is perpendicular to the wings. At what angle to the vertical must the wings be...

List and explain the categories of adopters.

What are the advantages and limitations of using variance and standard deviation as measures of return volatility?

Here is a forecast of sales by National Bromide for the first four months of 2010 (figures in $ thousands): On the average 50% of credit sales are paid for in the current month, 30% are paid in the...

Dynamic Futon forecasts the following purchases from suppliers: a. Forty percent of goods are supplied cash-on-delivery. The remainder are paid with an average delay of one month. If Dynamic Futon...

Each of the following events affects one or more tables in Sections. Show the effects of each event by adjusting the tables listed in parentheses: a. Dynamic repays only $10 million of short-term...

Bridgton Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $105,000, has a 5 year life, and costs $9,700 per year to operate. The relevant discount rate is 11...

The following table provides forecasted earnings and dividends per share for XPQ Manufacturing Inc. from 2001 to 2005. Beyond the forecasted period, the residual earnings are expected to grow at 5%...

Pro forma income statement Scenario analysis Allen Products LP, wants to do a scenario analysis for the coming year. The pessimistic prediction for sales is $894,000; the most likely amount of sales...